Borrowing against the Cash Value of an Insurance Policy

Your clients may want to consider funding their retirement lifestyle or other expenses by taking a loan against the Cash Value in their insurance policy.

There are 2 ways that you can model this in your projections:

  1. Use a line of credit.
  2. Use a non-taxable income stream.
1

Model using a line of credit.

This is very similar to using a Home Equity Line of Credit (HELOC) in Snap.  

We will use an example to illustrate. John would like to use a loan against his UL policy to provide $10,000 annually in order to fund his retirement. 

We have added a Line of Credit on the Debts page which starts with an Initial Balance of $0. We have set the Repayment Options to Interest Only.

On the Planning page, we have entered a negative value under the Amount Paid column for the annual income John would like from this Line of Credit.

You will need to monitor the Amount Owing on the Line of Credit to ensure it does not exceed a reasonable limit. Snap does not impose a limit on the Amount Owing for the LOC. The Death Benefit and CSV columns are displayed under the Insurance section just beside the Debt column for your reference.


2

Model using a non-taxable income stream.

On the Income page, enter a new non-taxable income with an amount of $0.

On the Planning page, enter the amount of the expected income in the applicable years.

If the insurance company provides an illustration of the Cash Value over time based on this loan of $10,000 per year, you can also update the CSV column under the insurance policy details. 

The decreasing value of the CSV is now displayed under the Insurance section of the Planning page. (Note that this is an example with sample values only.)

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